AI Excitement

Please click here for an enlarged chart of leveraged Direxion Daily Semiconductor Bull 3X ETF (NYSE:SOXL).

Note the following:

  • The chart shows yesterday's SOXL open and close were very close to each other, but there was a wide range during the day.  This pattern reflects indecision.  The question after yesterday's close was which way semiconductors would go today.
  • The chart shows semiconductors are rallying big this morning.  As of this writing in the early trade, bulls are winning, and bears are retreating.
  • RSI on the chart shows semiconductors can easily run up.
  • The buying in semiconductors in the early trade is spilling into the rest of the stock market.
  • There are three reasons investors are excited this morning:
    • The U.S. may potentially take a stake in AI companies.  Sam Altman of OpenAI appears to be championing the idea.  It appears President Trump is looking at the idea favorably.
    • OpenAI has filed for IPO right on the heels of Anthropic.
    • The upcoming SpaceX (SPCX) IPO
  • As the momo crowd is bubbling over with excitement, prudent investors should be aware of a potential liquidity squeeze.  We previously wrote:
  • “Prudent investors should also note that Alphabet chose to get ahead in its massive equity raise, ahead of massive IPOs from SpaceX (SPCX), OpenAI, and Anthropic.  Together, along with other IPOs, about $400B of liquidity is being taken out of the stock market.  Here are the key questions:
    • How will this liquidity be funded?
    • Will it be funded by investors selling other positions?
    • Will this liquidity test bring the stock market down?”
  • In the middle of triple manias about semiconductors, space, and options, the momo crowd is oblivious to Consumer Price Index (CPI) that will be released tomorrow.  Prudent investors should pay attention that the consensus for headline CPI is 0.5%, which on an annualized basis translates to 6% inflation.  The consensus for Core CPI is 0.3%, which on an annualized basis translates to 3.6% inflation.  The Fed's target is 2%.  Further, keep in mind the actual inflation appears to be running higher than reported numbers.  Right now, the narrative in the stock market is two-fold:
    • AI is so powerful that nothing else matters.
    • The U.S. will eventually have a deal with Iran, bringing down oil and inflation.
  • In our analysis, prudent investors should get ahead.  To get ahead, think about the impact of AI on inflation in two phases:
    • The building phase of data centers is inflationary. 
    • In the second phase when AI sees widespread adoption, AI will be deflationary. 

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are neutral in Microsoft Corp (NASDAQ:MSFT).

In the early trade, money flows are negative in Apple Inc (NASDAQ:AAPL).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.